Postal Savings Bank of China’s (PSBC) remarkable and rapid rise since its founding in 2007 is showing no signs of slowing down. Not only that, but talks of the lender launching an initial public offering (IPO) as early as the beginning of 2016 are spreading through the market.
PSBC’s growth trajectory is unrelenting. The bank entered The Banker’s Top 1000 World Banks ranking last year in 63rd position. This year it has jumped to 54th. In a Chinese bank ranking by Tier 1 capital, it stands in 12th position, up one place from last year's ranking.
With regards to the bank's prospective IPO, in February this year the Financial Times reported that PSBC could launch one of the largest ever to be completed, sizing between $10bn and $25bn. PSBC is reportedly also discussing the sale of minority stakes with potential investors, including an affiliate of Chinese e-commerce conglomerate Alibaba, US private equity groups and Asian sovereign wealth funds, ahead of the capital increase. The bank did not comment on The Banker’s enquiries regarding the IPO.
An inclusive model
In an effort to offset a slowdown in China's gross domestic product (GDP) growth – to 7.4% in 2014 – the country is aiming to change its economic model from an investment to a consumption-driven one, which, combined with liberalising financial sector policies that are squeezing net interest margins, is making even the country's largest banks rethink their structure.
“As the deepening of financial reform and the rapid advance of interest rate liberalisation have impacted the traditional profit-making pattern of commercial banks, all the major financial institutions have focused on retail banking in their business transformation,” says PSBC president Lu Jiajin. While most Chinese banks are witnessing drops in net interest margins, PSBC’s increased by 23 basis points year on year to 2.91% in 2014.
Mr Lu says that the lender aims to become a “world-leading retail commercial bank”, which does not sound too far-fetched considering PSBC’s network. It had almost 40,000 outlets, in every city in China and in 98% of its counties, by the end of 2014, and 478 million personal customers, which account for one-third of the country’s enormous population of 1.36 billion. The bank is also targeting consumers by offering financial services including housing, consumer and automobile loans.
As part of its mandate, PSBC continues to advocate 'inclusive finance' and services for the agricultural sector, rural areas, farmers, small and medium-sized enterprises (SMEs) and local communities. This community-based culture has allowed it to build a significant deposit base. As of the end of 2014, PSBC's annual compound growth rate of total deposits reached 15.7%, 1.77 times the average of state-owned banks, says Mr Lu. “Our personal deposits have grown by Rmb494.8bn [between 2014 and June 2015, 1.6 times state-owned banks] in spite of the acceleration of interest rate liberalisation and the impact of internet finance [challenging banks],” he adds.
Personal consumer loans increased by 45% year on year, exceeding Rmb500bn ($80.6bn) for the first time in 2014. PSBC’s pension service customers approached 100 million in this time.
SME race
Equally strong is PSBC’s SME business. By the end of May 2015, the balance of SME loans totalled Rmb608.9bn, accounting for 32% of total loans and having increased more than 30% compared with 2014.
PSBC has always focused on SMEs, but now China’s larger banks are also jumping on this bandwagon, due to interest rate liberalisation, financial disintermediation and supportive state policies, according to Mr Lu. Like many analysts, he agrees that these larger banks are arriving quite late in the game, however. “It is true that large banks in China used to focus on serving large and medium-sized enterprises and did not pay enough attention to the financing needs of small and micro-sized enterprises, business owners and individual businesses,” says Mr Lu.
In addition to large lenders, new privately owned banks in China, including Tencent’s WeBank and Alibaba’s upcoming MyBank, are also potential competitors in the SME sphere. Though Mr Lu does not see these as a threat to traditional commercial banks, he does recognise their competitive advantage in the use of the internet – which he puts at the core of banking development – and big data. “Commercial banks have an abundance of customer data, which has not been effectively integrated and used yet,” he says.
Conducting business online, without physical outlets, means that these banks have lighter burdens compared with traditional commercial banks, he adds.
With PSBC’s impressive growth story and a capital increase potentially on its way, the bank arguably has the means to face China’s transitioning economic environment without severe damage. And the bank’s scope is expanding further. This year, it won the bid for the first high-speed railway public-private partnership project in China. “[This] is a major achievement in our business transformation,” says Mr Lu.
